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Funds should manage core internally - IPE panel

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NETHERLANDS - European pension funds should manage the core of their business internally, and outsource only the specialist areas of asset management to external managers.

This was the message from pension fund managers who took part in a debate on pensions fund management at the IPE 2003 Awards ceremony in Amsterdam yesterday.

Silvio Vecchi, administrator of the reserve funds for pensions and social security at the European Patent Office in Munich, said the fund had switched switch from external to internal management of its fund to give it better control.

“External managers have to cope with inflows and outflows of money which are independent of the inflows and outflows of your fund. This can force an external manager to take decisions which are not always in the same direction as the intent of the fund.”

“Internal management gives us more choice. It is also less expensive than external management.”

Inigo Colombo, manager at the Grupo Telefonica pension funds in Madrid, said internal management was preferable because pensions funds act on a long-term basis. He said that asset mangers tended to have a much higher turnover in their portfolios than the pension funds. This increased costs and “pension fund managers tend to be obsessed with costs”.

Christian Cuenod, fund administrator of the CERN pension fund in Geneva, said that 50% of the fund was managed internally. “It is a question of what you feel comfortable with. One important aspect is a close understanding of a trustee’s intentions.”

Paolo Tosi, manager of Inarcassa, the pension fund for Italy’s self-employed engineers and architects said that internal managers were best suited to manage the core investments such as European equities and bonds.

“The internal management of long term investments is around the strategic and tactical asset allocation. We are the only ones who personally know our liabilities. We are the only ones who know the needs of our associates, so we can balance and re-balance the asset allocation for the medium term.”

He said the business of external managers was to manage asset classes that were beyond the expertise of the internal managers. “We use external manager to manage some important classes of assets, like alternative investments, because we do strongly believe in the specialisation of certain sectors of the market,” he said.

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